Summary of this article
Tax benefits ease education remittance burden for parents
Hedging protects against rupee volatility in payments
Hidden charges and compliance mistakes raise costs
For Indian parents, paying for a child's foreign education is one of the largest financial commitments. With increasing tuition fees, increasing costs of living, and constant fluctuations in the value of the rupee, each transfer done overseas counts.
Added to this, regulatory reforms like increased Tax Collected at Source (TCS) and complicated documentation render remittances more expensive than anticipated. Throw in there the current uncertainty of student visas and work opportunities, like the backlog and unpredictability with H1B visas in the US, and the cost burden just adds up. Parents are now looking for better ways to transfer money overseas without losing value along the way.
Utilising Tax Rules And Exemptions Strategically
One of the most important steps for parents is to know how tax arrangements can relieve the cost burden. The Reserve Bank of India's Liberalised Remittance Scheme (LRS) allows individuals to remit up to USD 250,000 per financial year without seeking approval.
Remittances related to education usually become eligible for lower TCS if they are financed with education loans. Parents also have the advantage of Section 80E of the Income Tax Act that provides an exemption on interest paid on such loans," says Pavan Kavad, managing director at Prithvi Exchange, a foreign exchange service provider.
He also points to the function of Double Taxation Avoidance Agreements (DTAAs). "DTAAs make it possible that students are not taxed twice on the same income, like scholarships or stipends, both in India and the host country. Clear knowledge of these provisions can reduce the cost substantially," he says.
Shielding Against Currency Swings
Exchange rate volatility is one of the largest risks involved in international education planning. Sudden rupee depreciation can double tuition and living costs overnight.
"Forward contracts enable parents to hedge the exchange rate of today for future payments, removing volatility risk," states Kavad. He further states that forex apps provide transparency of rates and enable tracking of currency trends in real time. "Forex cards or multi-currency accounts assist parents in preloading funds at favourable rates to provide predictability of tuition fees and living cost payments."
Such tools combined can enable families to skip unpleasant surprises from exchange rate volatility.
Compliance And Documentation: A Hidden Cost Trap
Parents often ignore the aspect that remittances become pricier because of petty compliance mistakes. Omitting PAN information, not specifying the proper purpose code for "education abroad," or neglecting LRS report requirement can all increase the TCS or even penalties.
"Non-compliance not only slows transfers down but can incur hidden expenses in the form of penalties and less favourable rates," cautions Kavad. Wrong documentation also slows down transfers, compelling families into last-minute payments on adverse exchange rates.
Verifying that tuition bills, loan payments, and remittances are correct lowers the chances of unnecessary compliance tests.
Bulk Transfers Vs Smaller Instalments
Parents tend to argue about whether to send money in a single large payment or in instalments. Both have advantages. Large payment transfers when rates are high lower total charges, but require bigger initial cash. Timed payment instalments in smaller sizes mitigate the risk of currency fluctuations but could push up transaction fees.
It is dependent on the cash flow and currency expectations of the family," says Kavad. "Lower instalment levels out the currency fluctuation risk but can add cost to transactions. Bulk transfers at good rates minimize cost but demand more upfront funds. Student loans not only simplify liquidity but also offer tax relief on interest payments under Section 80E.
Most families today opt for a mixed model, tying a portion of tuition fees upfront and remitting living expenses in small, regular instalments.
Spotting The Hidden Charges
The remittance cost is often less than the transfer fee. Exchange rate markup by banks or remittance providers commonly consumes part of the sent amount. Other costs are correspondent bank charges when money goes through middlemen, SWIFT charges, and receiving fees at the student's foreign bank.
"Parents tend to compare only on upfront fees, neglecting behind-the-scenes leakages such as correspondent bank fees, SWIFT fees, or even forex card inactivity fees," adds Kavad. Forex cards also can have ATM withdrawal fees and cross-currency transaction fees. A proper examination of all fees before selecting a payment method ensures maximum value reaches the student.
Visa Uncertainty Adds To The Burden
Even with meticulous planning, visa problems can upset financial calculations. For Indian students looking towards the US, the H1B visa is still a cause of concern. Processing delays, yearly caps, and changing rules have cast uncertainty on post-study work possibilities.
Better Planning For An Easy Ride
Overseas education is an investment but with risks, if financial planning is poor. Right from optimal usage of LRS allowances to availing tax benefits, right from hedging against currency fluctuations to avoiding lapses in compliance, parents have a whole array of tools at hand.
